Bankruptcy Information and OptionsThe purpose of Bankruptcy proceedings is to provide a "Fresh Start" to individuals with financial problems. Individuals who are unable to repay their bills can find relief in Chapters 7 or 13. We commonly refer to an individual who files a bankruptcy as a "Debtor." Businesses and other entities find relief in Chapter 7. Generally, Chapter 13 cases are vehicles for the reorganization of assets and liabilities while Chapter 7 cases discharge most unsecured debts and liquidate nonexempt assets. Chapter 7 cases are sometimes referred to as "Straight Bankruptcy". The filing of a Petition starts all Bankruptcy cases. Immediately upon the filing of a Petition an Automatic Stay becomes effective and operates as an injunction to stop all creditor actions, such as repossessions, mortgage foreclosures, garnishments, wage assignments and communication from creditors.
Chapter 13 is a reorganization proceeding for individuals, including self-employed individuals or sole proprietors, who have regular income. Chapter 13 allows individuals to repay their debts, or a portion of their debts, over a period of three (3) to five (5) years. In a Chapter 13, secured creditors - those holding liens or security interest in homes, cars, furniture or other collateral - are repaid in full. Unsecured creditors - those without liens or security interests - may be paid either in full or in part depending upon an individuals assets, income and expenses, and ability to repay creditors.
An individual will choose to file a Chapter 13 case for very specific reasons, such as where a home mortgage is in default or foreclosure. If the homeowner is able to pay the current mortgage payment, a Chapter 13 plan can provide for the repayment of the default and reinstatement of the mortgage. A Chapter 13 plan may also be used to repay nondischargeable debts such as alimony, child support, student loans or taxes, or to lower payments to creditors and to extend the period of repayment when creditors won't agree to the reduction or extension. Where an individuals assets have value in excess of outstanding liens, which could be liquidated in a Chapter 7 case to repay creditors, a Chapter 13 plan can be used to repay the nonexempt equity to creditors over the plan term.
Chapter 7 - Straight Bankruptcy:
Chapter 7 cases are liquidation proceedings used by individuals to discharge or extinguish personal liability for debts, such as credit card, medical and utility bills, and other dis chargeable debt. Certain debts, such as alimony, child support, criminal restitution and certain taxes are never dis chargeable in Chapter 7. Also, it is possible that debts incurred through fraud or other bad acts, such as conversion, embezzlement, and willful or malicious injury to property may not be discharged.
Liquidation does not mean that your property is sold or taken away from you. In every Chapter 7 case a Trustee is appointed to determine whether the case is a "No Asset Case" or an "Asset Case." Only in an "Asset Case" are assets liquidated and sold by the Chapter 7 Trustee. Assets or property are only liquidated or sold by the Chapter 7 Trustee when the asset or property has nonexempt value, in excess of any secured debt, which can be used to repay unsecured creditors. If you have Assets that exceed in value the limits set by law, but want to keep the property, you should consider filing a Chapter 13 bankruptcy. (See above for more information).
In a Chapter 7, secured creditors - those holding liens or security interests in homes, cars, furniture or other collateral - are treated differently than unsecured creditors. A Debtor has options with regard to secured creditors. The Debtor can "reaffirm" the debt. This means that the Debtor can keep the property and continue making payments towards the secured debt. By reaffirming a debt, personal liability for the debt remains, as if the Chapter 7 case had never been filed. Another option is to surrender the property to the secured creditor. This means that the Debtor gives the property back to the creditor and is allowed to eliminate the entirety of the debt through the Chapter 7 discharge process.
The debtor may elect to "redeem" collateral for the current fair market value. The balance of the debt is then discharged. An individual will choose to file a Chapter 7 case for very specific reasons. For example, where there is only dis chargeable debt and no ability to repay the debt. Or, where, a car loan or home mortgages in default or foreclosure and the owner is unable to pay the current payments and a deficiency will exist after the collateral is sold.